What is Brand Equity?
Brand Equity definition: the portion a company’s value attributable to its brand(s).
Simply, brand equity is the value of a brand.
Brand equity can be measured in currency (ie. USD) but is notoriously hard to price. Brand equity is always a part of the overall value of the company, and a company’s value is always based on future sales. Brand equity thus is the value of those future sales attributable to the brand(s) owned by the company. The definition of a brand is the preconceptions the customers, and those preconceptions affect sales. The brand equity is the value of customer preconceptions.
For example, Apple has a market cap or company value of $703.5 B, and a brand value of $214.5 B, so 30% of the total value of Apple is wrapped up in its brands.
So theoretically, Apple would lose nearly half of its value overnight if some bizarre trademark dispute meant that Apple could no longer sell under the name “Apple,” use the logo, similar graphics or the website / domain names, and not use any other brands (such as iPhone, or Macbook) as well.
Article of note: Is the NRA the Mythical Negative Equity Brand?
Theoretically, Apple could close up shop and sell or license it’s brand for $233.7 B dollars, but you may rightly question that. If Apple wasn’t making its products with its technology and talents, would it still be an Apple product? You would be right to say no. Brand equity is entwined with every other component of a company’s value. Companies are gestalt; they are their complete whole, inherently indivisible. This doesn’t stop companies licensing their brand to good and bad consequences.
The value I used for Apple’s brand is on Interbrand’s list of the 100 most valuable brands, where Apple typically lives at the top. Fortune’s methodology to assigned a figure to the brand value is to take the market cap of a company, subtract away all other assets and liabilities and multiply an index based on industry to account for the customers of different types products being more or less brand loyal. This methodology isn’t perfect, but none are. I am hoping that evaluating data with artificial intelligence will get us closer to true brand value in the future.
Another article of note: What is Brand Awareness?
It’s also interesting to note that Apple spends $1.8 B a year in advertising, and just can’t get up to $233.7 B value through investment in advertising alone; it just doesn’t mathematically add up because the return on investment (ROI) would just be an insane multiple. It goes to show that you can’t just “buy” brand equity through advertising; you have to earn it through operating as an exceptional business and giving value to customers through your products and services. A company builds it’s brand equity through people having positive experiences with their product, word of mouth, and customer relationships / service, and then linking these positive associations to unique graphics and brand names. It all adds up and contributes to brand equity.